5 Proposed Rules for Retirement Accounts

Our tax attorneys covered several pending federal revisions in our Tax Changes for 2015, one of which affects retirement accounts. Retirement contributions and distributions may face new limits:

1. Deduction and contribution caps. Under the proposed rules, percentage deduction an individual may take for contributions made to retirement accounts would be limited to 28%. This would affect high-income earners in a tax bracket above 28%. The contribution cap would be determined by calculating the lump-sum payment required to produce a joint and 100% survivor annuity of $210,000 annually starting when the account owner turns 62. At current rates this contribution cap is $3.2 million. The cap would increase for inflation.

2. Roth IRA RMD rule match. The budget proposes that Roth IRAs follow the same Required Minimum Distribution (RMD) rules as other retirement accounts. Roth IRAs currently have no RMD during the lifetime of the original account owner, which is one of the benefits that attractions conversions. Under the proposed rule, distributions would start at age 70 ½.

3. RMD exception. Individuals with $100,000 or less cumulatively in all retirement accounts would be exempt from RMDs.

4. Eliminate stretching for non-spouse beneficiaries. The proposal virtually extinguishes the ‘stretch IRA’ and requires a 5-year payout for those inheriting retirement accounts from anyone but their spouse. The proposal does include exceptions for minors inheriting IRAs and disabled persons. The other change affect non-spouse beneficiaries: 60-day rollover. Beneficiaries would have the opportunity to rollover their inherited IRA into another inherited IRA via a 60 day rollover in the same manner the original account owner could. Read about separate annual limitations to IRA rollovers imposed outside of this budget.

5. IRA auto-enrollment. Employers with more than 10 employees who have operated for more than two years will be required to provide auto-enrollment IRAs for their workers, unless the employer already offers a retirement plan. Employees can opt out of contributing, however 3% of their salary would be required annually as a contribution.